Betting on cinemas in troubled times

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The economic outlook continues to be filled with dark clouds, but more evidence surfaced in recent weeks that movie exhibition is weathering the storm better than most businesses.
The blockbuster numbers for Transformers: Revenge of the Fallen, which crossed the $300 million mark in a brisk 13 days, boosted the stocks of the three biggest publicly traded theatre circuits, Carmike, Regal and Cinemark, while shares in Imax rose 19% in the days following the action spectacle’s premiere.

At the end of June, Merriman Curhan Ford analyst Eric Wold changed his recommendation on Regal shares from “neutral” to “buy,” and advised investors to buy Carmike and Imax stocks.
“Any investor concerns heading into quarter-end can be alleviated and investors can build positions in the coming weeks into what we believe will be strong second-quarter results and third-quarter outlooks from the theater exhibition group," Wold stated on June 30.

At press time, Harry Potter and the Half-Blood Prince, Jerry Bruckheimer’s 3D family film G-Force, and the promising comedies The Ugly Truth, Julie & Julia and Judd Apatow’s Funny People were still on the horizon. Harry Potter alone should ensure an extremely robust July box office.

Meanwhile, revenue from advertising in U.S. cinemas had its slowest gain in the seven years these numbers have been tallied, but the 5.8% rise in 2008 still represents something positive.
“Media has seen such huge slippage—with audiences and advertisers both leaving—that to have a medium with growth is significant," Cinema Advertising Council president and chairman David Kupiec declared. (The CAC derives its statistics from member theatres, which account for 82% of U.S. screens.)

Kupiec said theatres are closing more ad deals this year, but because of the weak economy, they are smaller in size. The good, sustaining news for theatre owners is that advertisers pay a premium on a CPM basis for cinema advertising compared with television—about twice the going TV cost—because the recall rate is as much as five times greater, according to Kupiec.

The benefits of onscreen advertising are yet another reason why cinemas are a smart bet in this struggling economy—for advertisers, investors, and a public longing for relatively inexpensive but often spectacular entertainment.

A World Digital Forecast
A new digital-cinema briefing by London-based film-analysis specialist Dodona Research predicts that roughly 20% of the world’s cinema screens will be converted to digital projection by 2012, driven by the new wave of 3D film releases.

Nearly 12,000 screens have converted to digital projection worldwide out of a total of around 110,000 globally. The research predicts that 18,000 screens are expected to have converted to digital projection by the end of 2009. Currently, 5,000 screens worldwide have 3D capabilities, a number expected to double by the end of 2009, according to Dodona.

Beyond the one-fifth of screens switching to digital by 2012, the timetable for converting the remaining 80% remains murky due to the world economic crisis.

"Cinema owners still find it hard to justify replacing their 35mm projectors with more expensive digital equipment," the report noted, citing difficulties with finding a payment model to support conversion and "tougher financing terms since the onset of the banking crisis last year" as issues that have made the challenge "doubly difficult."

But recent news shows the digital transition continuing its momentum. The U.K. Film Council in early July announced the launch of a 1.2 million euro ($1.9 million) three-year pilot scheme to bring digital-cinema equipment to more rural areas. Distribution and exhibition fund chief Pete Buckingham stated, "This new pilot scheme will bring a top-quality cinema experience to the three pilot areas, so that people can enjoy the wide range of films on offer in urban areas, right on their doorstep.”

Meanwhile, in Norway, Film & Kino, the Norwegian interest organization for cinemas, is launching an initiative billed as the world’s first non-commercial, complete national digital rollout, with agreements with 20th Century Fox, United International Pictures (the local distributor for Paramount Pictures and Universal Pictures in Norway), Walt Disney Studios Motion Pictures International, and Warner Bros. Pictures International. The rollout, beginning in late 2009, will transform all of Norway’s cinemas, big and small, to modern DCI-compliant digital-cinema houses.

“This is a great undertaking for a small country”, said Jorgen Stensland, director of consultants at Film & Kino. “Under these agreements, Disney, Fox, Paramount, Universal, and Warner have committed to deliver wide releases to Norwegian digital cinemas. The deal also covers our own mobile cinema in rural areas… We are happy that Norwegians will be able to experience the perfect quality of a DCI-compliant digital exhibition, which will also give our audiences the opportunity to see the new generation of 3D films that are underway.”
Here’s hoping other countries follow the bold and forward-looking example of these pioneers in Norway.

Vindication for Pixar’s Up
It’s no secret that we at Film Journal International are fans of Pixar and their amazing run of ten critical and commercial successes. And so it was particularly gratifying to see Wall Street analyst Richard Greenfield admit that he was “dead wrong” when he predicted that Disney and Pixar’s Up would face a rocky box-office road, largely because of its gruff senior-citizen lead character and the lack of obvious merchandising hooks. What Greeenfield didn’t factor into his equation was the consistent originality and imagination of the Pixar writers and animators who turn unorthodox premises into movie magic. Up has surpassed movies like The Incredibles, Cars and Wall-E to become Pixar’s second highest-grossing picture in North America after Finding Nemo. The alchemy between moviemakers and their audiences is something even the most astute investment analysts simply can’t compute.